The New Rental Assistance Program is Tremendous But Has Five Big Flaws

When Congress passed the Consolidated Appropriations Act in late December, renter advocates and housing providers achieved a long-fought, milestone win with $25 billion going toward the newly created Emergency Rental Assistance program. The legislation uniquely unites renters and landlords together with funds to keep at-risk renters in their homes while also protecting property owners from losing their businesses.

Renter distress was a crisis that long pre-dates the pandemic – a problem largely ignored by policymakers until COVID-19 brought it to the forefront. Lawmakers initially responded with eviction bans, but that quickly backfired on both landlords and renters. Eviction bans crushed some small business property owners (particularly in big coastal cities) who struggled to pay their own bills when renters couldn’t pay the rent. Additionally, eviction bans severely limited available housing supply for lower-income households needing a safe place to live – exposing chronic underfunding of affordable housing by governments at every level.

The Emergency Rental Assistance program is an absolute historic win and a massive short-term stopgap. It’s a big deal. But it’s not perfect, and it does leave open some critical issues that could threaten the program’s impact. Here are the five big challenges:

Renter and Landlord Distress is Not Equally Distributed, But Funding Is

The legislation directs the U.S. Department of the Treasury to distribute the $25 billion to “grantees” – states, U.S. territories and Native American tribes. The allocation is generally based on population, with the caveat that each state (including the District of Columbia) receive a minimum of $200 million – which applies to 17 states, as well as to D.C.  In other words, those places receive a larger share per resident. Those minimums do not apply to U.S. territories – which receive anywhere from $9.7 million (American Samoa) to $325 million (Puerto Rico).

That’s a pretty typical Congressional allocation plan, as every legislator wants their district to get its share. The problem is that renter and landlord distress is not equally distributed. By all accounts, the challenges are most severe in the nation’s biggest, priciest coastal cities – and particularly in smaller, family-owned rental housing properties. 

In New York City, for instance, experts quoted by the Wall Street Journal estimated “the total debt New York City renters are carrying is likely more than $2 billion.” But the federal program allocates less than $1.3 billion to the entire state of New York. Additional funding is likely. President-elect Biden has pledged it, and should have no trouble getting it through a Democrat-controlled Congress. But a more realistic allocation plan is needed regardless.

How Will At-Risk Renters and Landlords Be Prioritized/?

Lawmakers specifically instructed that the most at-risk households – those at or below 50% of the area median income or unemployed for 90+ days – be prioritized for rental assistance. That’s the right idea, but lawmakers failed to provide mechanisms to actually do so.

The problem is one of good intentions. Lawmakers defined eligibility for rental assistance so broadly that funding can easily (and legally) go to opportunistic households with minimal need for assistance, and program administrators cannot deny funds to qualified households. That could divert rental assistance away from the most at-risk households. The legislation empowers states to administer their own programs with their allocated federal funds, so it’ll be important to see how each state addresses the prioritization issue.

How Will Past-Due Balances Be Handled/?

For renters with a past-due balance (“rental arears” in legal speak), the legislation requires that some rental assistance funds apply toward reducing that balance. Here is how lawmakers worded it: “To the extent that applicants have rental arrears, grantees may not make commitments for prospective rent payments unless they have also provided assistance to reduce an eligible household’s rental arrears.”

The lack of detail creates enormous room for interpretation. For example: Let’s say a renter has an outstanding balance or back rent of $4,000 on top of ongoing monthly rent of $1,000. If a local program awards the renter with $3,000 in rental assistance, how much would cover past rent versus current and future rent? Like the prioritization issue discussed earlier, this will come down to how states define their own rules. Each state could create massively different requirements, and some could easily skirt around lawmakers’ intent by allowing a minimum payment as low as a single penny towards the outstanding balance. 

To avoid widespread differences by state and to stave off needless fights, the Treasury should issue guidance setting clearer rules on rental arrears paydowns.

Will States Add More Requirements?

Renter advocates and housing providers are both pushing for states to provide a frictionless application process with minimal documentation requirements to ensure renters and landlords receive aid quickly. Additionally, housing groups are lobbying federal administrators to prevent states from issuing burdensome requirements that undermine the law’s intent. In particular, there is concern some states may try to require property owners to accept discounted rent or absorb back rent. Any such attempts will slow down much-needed aid to both renters and property owners – most of whom are small family businesses hard hit by unpaid rent.

The Emergency Rental Assistance program is uniquely designed to unite renters and landlords together, protecting both parties. Any state efforts to undermine congressional intent would be a significant blow to both renters and property owners.

Eviction Language is Muddy

The Emergency Rental Assistance program won’t help clear up the muddy area of evictions. On the one hand, the legislation extends the federal eviction moratorium through January 31. (President-elect Biden has already announced intentions to extend it even further.) On the other hand, the legislation also says: “Nothing in this section shall be construed to invalidate any otherwise legitimate grounds for eviction.” 

In other words, it’s still a messy topic. Bottom line: If the program works as intended, evictions for non-payment should remain exceptionally rare (as they were throughout 2020, even when eviction moratoriums weren’t in place, despite widespread predictions of an evictions “tsunami”). But for many property owners, their frustrations are not with hard-hit renters needing assistance with rent. Their challenge is what they call “ghosting” – tenants openly exploiting eviction bans by refusing to pay rent or participate in a flexible payment plan even if they haven’t experienced financial hardship.

So, what happens when a renter refuses to apply for rental assistance and does not pay rent? Furthermore, there will remain confusion around eviction filings unrelated to rent payment – such as property destruction or harassment of neighbors. It’s also worth noting that stricter eviction bans at the local and state level will still apply, maintaining a patchwork of regulations across the country.

What Happens Next?

With President Joe Biden now in office and Democrats in control of the Senate, we will see additional steps to protect renters and landlords. The Biden platform calls for another $25 billion in rental assistance, while at the same time extending the federal eviction moratorium through September. Additional funding is a very positive step, and it’s assumed the new administration will leverage the Emergency Rental Assistance program to do so.

But without clarifying these key details, open questions around funding allocation, aid prioritization, back rent, eligibility requirement and evictions, policymakers risk partially undermining efforts to protect renters and rental housing. 

Still, the unprecedented effort to unite and protect renters and landlords together is a historic achievement. Mutual protection should remain the overarching goal going forward to keep at-risk renters in place, expand affordable housing supply, and protect property owners’ ability to stay afloat and fuel our economy.

Jay Parsons is VP and Deputy Chief Economist of RealPage.